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Since 2008, the conventional wisdom is that deregulation caused the financial crisis, that financial institutions lacking sufficient government oversight ran amok, and that the only path to future financial stability requires reinstatement of old rules or creation of a new bureaucracy to oversee the financial industry. What if this conventional wisdom is wrong?

Conventional wisdom demanded that there be changes in how financial firms do business. This led to passage of Dodd-Frank. Implementing its myriad parts has proven much more difficult than passing the act, however — and not because banks and other financial firms have lobbied strongly against its provisions. Rather, after the storm passed and the act was passed, it is not exactly clear what should or can be done to minimize risk in what is inherently a risky business.

Although it took several years, we also now have the Consumer Financial Protection Bureau. Given the task of protecting your financial safety, much of what the new agency will do probably falls under a number of existing acts and the purview of existing agencies.

How to proceed? One approach, suggested by Elizabeth Warren, the Democratic candidate for the Senate in Connecticut and the one-time maven of the CFBB, is reinstatement of regulations akin to Glass-Steagall. Passed following the Great Depression and repealed in 1999, Glass-Steagall separated commercial and investment banking. In theory, Glass-Steagall prohibited banks from using depositor funds for their own speculative investments.

Would re-instating Glass-Steagall prevent another crisis? Those who favor governmental intervention answer yes. After all, they argue, wasn’t the 2008 crisis an outcome of repealing Glass-Steagall? That type of post hoc ergo propter hoc argument is inadequate, however.

Others, even Fed officials, are not convinced that reinstating Glass-Steagall would accomplish the desired outcome. The New York Times reports that Richard Spillenkothen, the former director of the Fed’s division of banking supervision and regulation opined in Politico’s Morning Money that Glass-Steagall, if still in place, “would not have prevented the financial crisis.”

How can the probability of future financial crises be reduced? Research indicates that one approach is to disregard conventional wisdom and reduce regulation.

Economists have studied financial crises long before the 2008 upheaval. Looking for underlying causes of financial crises around the world, one factor that continually asserts itself is the presence of deposit insurance. Deposit insurance protects depositors from loss should their bank fail. Depositors love these programs because they no longer need to monitor their bank’s actions. If their bank makes bad loans and becomes insolvent — the most likely reason for bank failure, not speculative trading — the government swoops in and deposits are unaffected.

This of course allows some banks to behave in a riskier fashion since they are no longer on the hook for potential deposit losses. In such a world, why not take a flyer on that risky shopping mall loan?

Research also shows that financial sector regulation is another key ingredient in predicting a financial crisis. Clemson University economists Scott Baier and Matthew Clance, together with Atlanta Fed economist Gerald Dwyer report in a recent study that after controlling for other possible influences, a decrease in economic freedom &mdash ;more regulation — is a significant predictor of future financial crises.

The Baier study also finds that a reduction in economic freedom generally follows a financial crisis.; In the United States, Dodd-Frank and the CFPB are evidence that more government regulation and calls for restricting the activity of financial firms comes on the heels of financial crises. History suggests that such reactions do not prevent future crises but reduce the efficiency of the financial system in performing its economic function.

As we enter the maelstrom of presidential politics, the two sides will stake out their position on financial regulation. One side will tout conventional wisdom and pit Main Street against Wall Street.; Let’s hope that the opposing view will rely more on research and analysis.

As many as 900 colleges are pushing students into using payment cards that carry hefty costs, sometimes even to get to their financial aid money, according to a report released Wednesday by a public interest group.

Colleges and banks rake in millions from the fees, often through secretive deals and sometimes in apparent violation of federal law, according to the report, an early copy of which was obtained by The Associated Press.

More than two out of five U.S. higher-education students — more than 9 million people — attend schools that have deals with financial companies, says the report, written by the U.S. Public Interest Research Group Higher Education Fund.

“For decades, student aid was distributed without fees,” said Rich Williams, the reports lead author. “Now bank middlemen are making out like bandits using campus cards to siphon off millions of student aid dollars.”

Programs like Higher Ones shift the cost of handing out financial aid money from universities, which no longer have to print and mail checks, to fee-paying students, Williams said.

The fees add to the mountain of debt many students already take on to get a diploma. U.S. student debt tops $1 trillion, according to the Consumer Financial Protection Bureau.

Student loans have surpassed credit cards as the biggest source of unsecured debt in America, according to the CFPB, which regulates cards and private student lenders.

It took Mario Parker-Milligan less than a semester to decide that he was paying too many fees to Higher One, the company hired by his college to pay out students financial aid on debit cards.

Four years after he opted out, his classmates still face more than a dozen fees — for replacement cards, for using the cards as all-purpose debit cards, for using an ATM other than the two on-campus kiosks owned by Higher One.

“They sold it as a faster, cheaper way for the college to get students their money,” said Parker-Milligan, 23, student body president at Lane Community College in Eugene, Ore. “It may be cheaper for the college, but its not cheaper for the students.”

Among the fees charged by Higher One, according to its website, is a $50 “lack of documentation fee” for students who fail to submit certain paperwork. The U.S. Department of Education called the charging of such fees “unallowable” in guidance to financial aid officers issued last month.

Higher One founder and Chief Operating Officer Miles Lasater said in an email that the company takes compliance with the governments rules “very seriously,” and officially swears that to the government each year.

“We are committed to providing good value accounts that are designed for college students,” he said, and students must review the companys fee list when they sign up for an account. He cited a study commissioned by Higher One that declared Higher One “a low-cost provider for this market.” The same study found that the median fees charged to the 2 million students with Higher One accounts totaled $49 annually.

Among the fees charged to students who open Higher One accounts: $50 if an account is overdrawn for more than 45 days, $10 per month if the student stops using his account for six months, $29 to $38 for overdrawing an account with a recurring bill payment and 50 cents to use a PIN instead of a signature system at a retail store.

Higher One has agreements with 520 campuses that enroll more than 4.3 million students, about one-fifth of the students enrolled in college nationwide, according to public filings and the U.S. PIRG report. Wells Fargo and US Bank combined have deals with schools that enroll 3.7 million, the report says.

Lane Community Colleges president, Mary Spilde, said in an interview that the real problem is a “lack of adequate public funding,” which forces students to seek financial aid and colleges to find ways to cut costs.

“Many institutions are looking at ways to streamline and to do things that we’re good at, which is education and learning, and not banking,” Spilde said.

Students can opt out of the programs and choose direct deposit or paper checks to receive their college aid, but relatively few do. The cards and accounts are marketed aggressively using college letterhead and websites carrying the endorsement of colleges. Higher One also warns students that it will take extra days if they choose direct deposit or a paper check.

In the end, students feel locked into accounts before they have a chance to shop for a better deal, Parker-Milligan said.

He said thats especially tough for poor students who rely on food stamps and other social services. Those students budget down to the penny, and dont plan on paying a fee when Higher Ones ATM runs out of cash, he said.

Offerings by financial companies vary by campus. Some issue checking accounts with debit cards. Others offer prepaid debit cards, which are similar to bank debit cards but can carry higher fees and offer fewer consumer protections.

Often, students campus ID cards double as payment cards. At the University of Minnesota, TCF Bank issues cards that serve as school IDs, ATM and debit cards, library cards, security cards, health care cards, phone cards, and stored-value cards for vending machines, the report said. TCF also has branches on campus and 25-year naming rights to the football stadium. Its cards charge similar fees, the report says.

Having such visibility on campus is a big benefit for banks seeking exclusive access to an untapped group of potential customers. Many banks are willing to pay universities for the privilege.

Under its contract with Huntington Bank, Ohio State University will receive $25 million over 15 years, plus a sweetener of $100 million in loans and investments for the neighborhoods around campus, the report said. Florida State receives a portion of every ATM fee paid by a student, it says.

It’s difficult to get a full picture of how much money the schools are getting because most of them refuse to release their contracts with banks. Only a handful were available to the authors of the report.

Ohio State and Florida State did not immediately respond to requests for comment. The National Association of College and University Business Officers, a trade group involved in the issue, did not respond to multiple requests for comment.

Lane Community College receives no payments under its contract with Higher One, Spilde said. Lasiter said Higher One does not “offer revenue sharing” to colleges that it partners with. However, Higher One does pay some universities under existing contracts, according to the U.S. PIRG report.

Campus card deals have become more popular in part because of recent legal changes that cut into the profits banks can generate from students.

A 2009 law banned credit cards given to students who had no way of repaying. It forced colleges to disclose deals with credit card companies and stopped some forms of marketing, such as offering students free gifts in exchange for obtaining a credit card.

Until recently, banks also made a lot more money from student loans. They extended federal aid to students, and also offered confusingly similar, higher-cost private loans alongside the government programs. Congress cut them out of the equation in 2010.

Neither change affected debit cards. As the recession forced states to slash higher education budgets, companies such as Higher One, Wells Fargo and US Bank approached colleges with an attractive proposition: The companies would assume the cost and hassle of handing out student aid funds, often paying for the privilege.

Consumer confidence fell 3.8 points in May to 64.9, marking the third drop in a row. While the slide is disappointing, confidence had spiked in February and some payback had been expected.

Déjà vu All Over Again

Consumer confidence fell 3.8 points in May, marking the third consecutive monthly drop and largest monthly decline in seven months. Although we were projecting a small decline, May’s 3.8-point drop came as a bit of surprise to the financial markets. The consensus was expecting a small increase, particularly after Friday’s surprisingly strong University of Michigan consumer sentiment report. Our thought has long been that the consumer confidence numbers were somewhat biased to the upside earlier in the year by the unseasonably mild winter weather and a quirk in the seasonal adjustment process related to the unusual depth of the 2007- 2009 recession, which saw some of the largest drops in confidence occur during the fall of 2008 and winter of 2009. The low for consumer confidence was hit in February 2009, at 25.3, and the two best months for consumer confidence over the past year and a half were February 2011, at 72.0, and February 2012, at 71.6.

Aside from these seasonal quirks, consumer confidence seems consistent with an economy growing at around a 2.0 percent pace. The overall index has averaged a measly 58.8 over the past 12 months. That pace, however, includes last summer’s plunge that followed the debt ceiling debacle and downgrade of the U.S. sovereign debt rating. Aside from that slide, overall consumer confidence appears hovering somewhere around 65 and 70.

Consumers are dealing with an awful lot of crosscurrents. The headlines have generally been terrible, particularly those dealing with Greece and Spain. The domestic headlines have not been nearly as threatening. The unemployment rate has continued to trend lower and gasoline prices have fallen, which is a huge relief going into the peak summer driving season.

The lingering anxiety over the European financial crisis and recent slide in stock prices may have caused some consumers to feel a sense of déjà vu. While it seems like we have been here before, in many ways we have never left. We are no closer to a resolution to the crisis in Europe today than we were last summer and another hike in the debt ceiling limit awaits

congressional action, following little to no progress at reducing the federal budget deficit. Moreover, while the unemployment rate has continued to decline, job growth remains tepid at best, and a large portion of the jobs being created continue to be low paying professions. Real after-tax income per person has been flat for the past two years.

There was one bright spot. Buying plans for cars and major appliances rose in May and plans to buy a home essentially held steady. Apparently consumers are becoming accustomed to the subpar economic recovery and moving forward with purchases put off when worries about employment and income were even greater than they are today. With income growth stagnant, consumers have turned to debt to finance these purchases.

At 60, Harvel faces medical and credit card bills topping$80,000. Yet Harvel is unable to work, having been injured at a job site more a decade ago. The former building maintenance worker now lives on$904a month inSocial Securitydisability benefits.

“I was so sick and tired of getting the bills, so I would throw them away,” Harvel said from his tiny basement apartment inDundalk. “I’ve had to try to tell myself that it’s something I will wake up from.”

In Maryland and across the country, baby boomers and other older Americans are drowning in debt, say credit counselors, elder law attorneys and economists. A growing number of older people in theBaltimore region are seeking financial assistance and help finding work, as well as filing for bankruptcy, say those who work with senior citizens.

From 1992 to 2007, the percentage of households of people in their mid-50s and older with housing and consumer debt rose from 53.8 percent to 63 percent, according to the Washington-based Employee Benefit Research Institute’sresearch using government data. The problem is even more acute for those 55 to 64, with 81.7 percent carrying debt.

Over the same period, the average overall debt for these 55-and-older households more than doubled, to$70,370, according to EBRI.

In Harvel’s case, he piled up debt over years of taking care of his sick wife, Loretta, who died last year at 63. She had diabetes, was on dialysis and required two open-heart surgeries, Harvel said.

Health care bills are a leading factor contributing to the indebtedness of graying Americans.

Workers are paying more for employer-sponsored health insurance, while costs for medical care are skyrocketing. Eligibility for Medicare doesn’t begin until age 65, and it does not cover such expenses as hearing aids, dental care and long-term nursing care.

Meanwhile, more older homeowners are carrying mortgage debt into retirement. Making matters worse, declining housing values have cut into what had been a safety net for older Americans and retirees: their homes.

Some older consumers also are saddled with credit card debt. Among Americans 65 and older, for instance, the average amount of credit card debt rose to$10,235 in 2008 from$8,138 three years earlier, the largest percentage increase among all age groups, according to a survey by Demos, aNew York-based public policy institute.

Moreover, other older Americans are haunted by student loans years after they, or their children, left school. Adults 50 and older owe 17 percent of the nation’s$870 billion in student-loan debt, according to a March report by the Federal Reserve Bank ofNew York.

While recent government data shows declining consumer debt as families cut back on spending and saved more money, not all older Americans can follow suit. Not only are most older Americans past their prime earning years, but many must dip into their savings to stay on top of bills — while those still working may make less than they did in previous years.

Low-income seniors with excessive debt are having a hard time digging out in an environment in which “job growth is slow and salary increases are minimal,” saidCraig Copeland, a senior research associate at EBRI, who wrote the study on debt among the elderly.

David Jones, president of theAssociation of Independent Consumer Credit Counseling Agencies, said debtors age 60 and older now represent the fastest-growing segment seeking help at member offices across the country.

The trend has been especially evident in the last two years, a period in which the eldest of the baby boomers began retiring, Jones said.

“There were a lot of people in this population that decided to retire without the same kind of assets that previous retirees had,” he said. “In fact, we began to see people with$60,000in non mortgage debt.”

In general, the association said, the average client at its nonprofit local credit counseling agencies has gotten older: 44.5 in 2011 versus 41 in 2007. The average client also was middle class and seeking help for reasons such as a job loss, reflecting the aftermath of the financial crisis, Jones said.

While some older Americans are able to delay retirement, not all can. Unable to find work or other sources of money, many seniors can’t manage their debt on a fixed income.

“These people don’t have the same options that others do,” Jones said. “They can’t in many cases find a job, and if they do, they have to work at a job at a lot less money than they’re used to.”

Norman Zimmering, 81, exhausted his savings trying to pay off medical bills for his wife, Harriet, who died in 2009. She had a heart condition as well as dementia, Zimmering said.

“Most of my money was spent on hospitals, nursing homes and whatever medication,” said Zimmering, who lives in a sparse apartment in Reservoir Hill.

Soon after his wife’s death, Zimmering said, he was laid off after 11 years as a security guard at theSands Expo Convention CenterinLas Vegas.

Unable to find work and keep up with medical bills, some of which he paid for with credit cards, Zimmering filed for bankruptcy last year, listing$42,020.87in liabilities, mostly medical bills. A judge discharged his debts last year.

“I kept repeatedly getting big bills and big bills. I tried very hard. I couldn’t do it any more,” he said. “I had to go into bankruptcy.”

Zimmering moved to Baltimore a year ago hoping to find a job here either as a security guard or piano tuner, but so far he hasn’t had any luck. He said his age and bad credit because of the bankruptcy hurt his employment opportunities.

“I even tell people, ‘I don’t care what you pay me, as long as it brings in some revenue and keeps my dignity,'” said Zimmering, whose primary source of income is$1,027 a month in Social Security.

Louise Carwell, a lawyer who works with low-income seniors at the Maryland Legal Aid’s consumer law unit inBaltimore, said her clients are dealing with a wide range of debt, from credit cards to medical bills.

Many seniors inBaltimore also are behind on property taxes, which puts their homes at risk of going to a tax sale.

Carwell and other public-sector attorneys who work with the elderly say indebted seniors want relief, a trend that has increased in the last several years.

“The anxiety that they get or they create within themselves from debt collectors, that’s really punishing,” Carwell said. “That’s why a lot of my folks file for bankruptcy.”

Bankruptcy filings among seniors have risen markedly in recent years, according to recent studies. In general, the median age of people filing for bankruptcy has risen, to age 43 in 2007 from 36.5 in 1991, according to research published last year by John A. E. Pottow, a law professor at theUniversity of Michigan.

Adults 65 and over are the fastest-growing age group among people filing for bankruptcy protection, according to Pottow’s research. He found that older debtors carry 50 percent more credit card debt than younger debtors. Seniors cited credit card debt as a reason for their bankruptcy more frequently than did younger bankruptcy filers, according to his research.

Mary Aquino, a staff attorney with Legal Aid’s Baltimore County Elder Law Program, said she recalled a 75-year-old client who was nine months behind on her mortgage, with $10,000in credit card debt and an additional $36,000 in student-loan debt. The woman’s sole income was a monthly $1,100 Social Security check.

“She’s hoping to file for bankruptcy and keep her home,” said Aquino, noting that student loans are usually not discharged in bankruptcy.

Harvel, too, wants relief from his mounting debt.

Besides getting dozens of late and collection notices for his and his wife’s medical bills, Harvel is being sued by a funeral home, which provided services for his mother, grandmother and brother, all of whom died in the same month last year. Harvel said he put up the money for their services, using all his savings and cashing out some savings bonds. But he still owes$986, plus interest, court and attorney fees.

Harvel expressed a mix of guilt and remorse for racking up so much debt but said he simply does not have the means to pay it off.

After being homeless for eight months, Harvel now has a place to live, thanks to theBaltimore County Department of Aging.

A bankruptcy, Harvel said, would give him a fresh start and peace of mind. After Harvel put away about $200 to pay for bankruptcy in recent months, Del Pizzo, the Dundalklawyer, agreed recently to file the paperwork pro bono.

Millions of Americans are now happily taking on credit card debt because their accounts will grant them points, cash back or airline miles for doing so, and half of those making summer travel plans will redeem those perks to make their vacations more affordable.

About 50 percent of all consumers planning to take a trip this summer will use their credit card points to finance at least part of it, up from 42 percent at this time last year, according to the latest Rewards Barometer from Capital One Financial, which tracks how borrowers are feeling about their rewards cards. The majority of those who plan to use their rewards points in this way – 58 percent – will do so to buy airline tickets, while another 42 percent will redeem their accumulated rewards for hotel stays, and 18 percent will use theirs for gasoline purchases.

However, many consumers who use rewards cards may not be aware that doing so can be costly, as these accounts typically have higher annual fees and interest rates than no-frills cards. This means users might be more likely to end up needing debt relief as a result.

The nation’s consumer financial watchdog is preparing restrictions on prepaid debit cards, a largely unregulated product that is flourishing even amid concerns about high fees and poor disclosures.

On Wednesday, the Consumer Financial Protection Bureau is expected to introduce a preliminary rule for prepaid products — the first of its kind. The bureau, which is expected to complete an overhaul in the next year, will also hold a hearing on Wednesday in Durham, N.C., that will feature testimony from consumer advocates and some of the card industry’s biggest players.

Until now, prepaid cards have escaped the regulations passed after the financial crisis. As new rules have targeted credit cards and traditional debit cards, a number of banks barreled into the prepaid market.

While the consumer bureau’s new effort would not rein in most fees that come with the cards, like a $5 monthly maintenance fee, it would require companies to reimburse consumers for unauthorized charges.

Card providers argue that they offer a competitive price and help consumers control their spending. But some federal regulators and consumer advocates worry that companies are steering low-income consumers into a relatively expensive product rather than plain vanilla checking accounts.

“The people who use prepaid cards are, in many instances, the most vulnerable among us,” Richard Cordray, the consumer bureau’s director, said in a statement, adding that “right now prepaid cards have far fewer regulatory protections” than traditional banking products.

David Newville, policy manager with the Center for Financial Services Innovation, said the proposed regulations would provide much needed transparency.

They are “what we would like to see,” he said.

The new oversight would coincide with a boom in the prepaid business. In 2009, borrowers had roughly $29 billion worth of prepaid cards, according to the Mercator Advisory Group, which provides research for the payments industry. By 2013, the volume of money on prepaid cards is expected to swell to $90 billion.

As big banks clamor for customers, they are muscling their way into the market, which until a few years ago was largely the terrain of less traditional financial firms like Green Dot and NetSpend. They also would be subject to the new rule.

In March, Wells Fargo introduced a reloadable prepaid card. And, Regions Financial, based in Birmingham, Ala., unveiled a prepaid card aimed at borrowers who typically do not have a traditional bank account.

JPMorgan announced earlier this month that it would start offering prepaid cards. Branded as “Liquid,” the card carries a $4.95 monthly maintenance fee but does not charge customers to add money.

The banks were drawn, in part, because prepaid cards were largely untouched by the Dodd-Frank regulatory overhaul law and other recent crackdowns that have siphoned billions of dollars in income from debit and credit card fees.

The law exempted prepaid cards from the so-called Durbin Amendment, allowing banks to impose high fees on merchants when consumers make a purchase with a prepaid card.

Advocacy groups have questioned whether card issuers clearly explain to cardholders the fees that come with the product, including charges to activate the card, load money on it, check a balance at cash machines and speak to customer service.

Some consumer advocates say the fees erode the money loaded onto the cards. Wells Fargo, for example, charges $3 for customers to withdraw money using a bank teller and $5 to replace a lost card.

A study by Pew, a nonprofit research group, also indicated that some customers were unaware their prepaid cards are not necessarily protected by the Federal Deposit Insurance Corporation. The bureau’s new proposal would not address that issue.

But under the bureau’s so-called advanced notice of proposed rulemaking, the agency is seeking to apply a longstanding federal rule for debit and gift cards to prepaid products. The rule, known as Regulation E, requires companies to reimburse customers for unauthorized transactions that pop up when a prepaid card is lost or stolen.

If you look at payday lending stores like a deadly disease, then the letter was like an announcement of a new virus mutation.

The letter, signed by 250 consumer advocate groups, charities, religious organizations and policy think tanks, called on federal regulators to stop payday lending by banks, calling it “inherently dangerous.”

Banks offering products similar to payday loans are not, of course, deadly viruses or mutations. They are not even particularly new (Wells Fargo has offered its “Direct Deposit Advance” since 1994 for example). But consumer advocates such as Ginna Green, a spokeswoman for the Center for Responsible Lending, are worried more banks will look to payday type loans with triple-digit annual percentage rates — all in an attempt to help replace income they lost when the federal government clamped down on high fees on credit cards and debit cards.

“There should not be insane profits on the backs of people who can least afford it,” Green said. “The fact that a bank could come in and charge the same amount of interest as the payday lending place in the gaudy building on the corner is unacceptable to me.”

If it looks like a duck

A study by the Center for Responsible Lending looked at the “checking account advances” or “direct deposit advances” that several banks are offering. CRL wanted to see how similar the advances were to the storefront payday loans.

A traditional payday loans is a short-term loan that is due in full at the borrower’s next payday. But many who take out these loans are unable to pay it in full with their next paycheck, so they either roll the loan into another payday loan or pay it off and take out a new payday loan. Either way, they pay the new fee and end up trapped in a debt cycle and carry an annual interest rate averaging 417 percent.

Although the banks do not call their advances “payday loans,” Green said the effect is the same. “If it looks like a duck and quacks like a duck,” she said. “It looks just like a payday loan. It has triple-digit APRs. You have to pay it back within a month — some times within two weeks. That is a payday loan offered by a bank.”

Other banks that offer the advances are US Bank, Regions, Guaranty Bank and Fifth Third Bank. Sometimes the banks are able to offer the advances in states that otherwise prohibit or restrict payday loan stores.

The study by CRL found that, on average, the bank payday loans carry an APR of 365 percent based on the typical loan of 10 days. That is a $10 fee for every $100 borrowed. The study also found that people who take out the bank payday loans are in debt, on average, for 175 days per year — repeatedly taking out the short-term loans.

And almost one-quarter of all bank payday loan borrowers are Social Security recipients.

Payday lending stores use post-dated checks to access funds in a borrower’s checking account. Banks, however, have the advantage of putting themselves first in line to collect their fees and loans automatically when the direct deposit comes in.

“With the bank payday loans there is not a cushion,” Green said, “where a storefront payday loan place might cash the check, they might not. With bank payday, it is going to be deducted as soon as your paycheck comes through the door.”

Some banks even go so far as to automatically overdraw an account if the direct deposit didn’t have enough to pay off the advance. This means the resulting overdraw fees are added on top of the advance fee.

Nathalie Martin, a professor at University of New Mexico’s School of Law and an expert on consumer law, said some people go to the storefront payday lenders and borrow money to pay off the bank advances — thus expanding the cycle of debt.

Asking for regulation

The letter sent by advocates to the federal regulators asked those regulators to move quickly to stop the use of the loans among banks from becoming more widespread. “Ultimately, payday loans erode the assets of bank customers and, rather than promote savings, make checking accounts unsafe for many customers,” the letter stated. “They lead to uncollected debt, bank account closures and greater numbers of unbanked Americans. All of these outcomes are inconsistent with consumer protection and harm the safety and soundness of financial institutions.”

Even before the letter came out in late February, the head of the Consumer Financial Protection Bureau, Richard Cordray, said it has the authority to examine payday lenders and banks that offer deposit advances. “We have already begun examining the banks,” he said, “and we will be paying close attention to deposit advance products at the banks that offer them.”

The Consumer Financial Protection Bureau even has a webpage for complaints about banks, credit unions, payday lenders, debt collectors and other financial service companies at www.ConsumerFinance.gov/complaint.

But not everyone thinks payday loans are a bad thing — or that banks offering the loans are engaged in something that is inherently dangerous. Richard W. Evans, an assistant professor of economics at BYU, said the high fees charged for payday loans are necessary. “I think the evidence I found is that these high interest rates in payday lending, of 400 and 500 percent APR, these are market determined interest rates,” he said.

The loans are very risky for regular payday lenders. The low dollar amount of the loans also factor in. Evans said, for example, a $100 loan might take an hour and a half of an employee’s time to process from start to finish. If they are being paid $8 an hour, that is $12 just to service the loan. A $15 charge for a $100 loan comes out to about a 450 percent APR.

But Evans (who received a research grant in 2010 from Consumer Credit Research Foundation, which publishes research supporting the payday lending industry) doesn’t like even using APR for payday loans.

Green, however, said looking at the APR is necessary. “The whole purpose of APR was designed so that people would be able to compare the cost of credit,” she said. “A lot of loans don’t go out for a year. Some loans go for 30 or some go for five. Very few loans are one year, but the reason why we calculate an APR is so we can do an apples-to-apples comparison about the cost of credit.”

Evans said it is less risky for a bank to get involved in payday lending. Banks know a lot about their customers, he said. It has a list of every transaction. It knows the income history. It knows how often a person is paid. It knows how a person spends their money. It can pull credit reports.

Payday lenders, on the other hand, don’t have any of that. People just walk in off the street. “Banks have so much more information,” Evans said. “And they have an ongoing relationship with their depositors.”

Protecting their customers

And it is the ongoing relationship that makes a difference, according to Richele Messick, a Wells Fargo spokeswoman. “We are here to help our customer to succeed financially,” she said. “It isn’t good for Wells Fargo if this service doesn’t meet its intended purpose, which is to help customers through an emergency situation.”

Wells Fargo has offered its “Direct Deposit Advance” for 18 years. It limits the loans to half of a customer’s direct deposit or $500, whichever is less. It charges $7.50 per $100 borrowed — less than other banks. It needs to be paid in full before another similar advance cab be taken out. And, if for some reason the customer’s direct deposit suddenly goes down, Wells Fargo will not touch $100 of the deposit — leaving a buffer and avoiding an overdraft. The bank waits for the next deposit before continuing taking out more of the payment.

But even with Wells Fargo’s protections in place, a person could theoretically take six consecutive $500 advances and then four more months of lower advance amounts.

Martin at the University of New Mexico said, “I think a lot of banks do not want to make these sorts of loans — that they find it somewhat reprehensible to make loans at 250 percent interest and higher, I hope this won’t become a trend.”

But Messick wants Wells Fargo’s clients to make their own assessment as they have for years. “We try and show our customers what other options there might be and what the fees are for those credit options,” she said. “We definitely want our customers to make informed decisions about their financial choices.”

On a $20,000, 60-month auto loan from a bank, a borrower with a low credit score would typically be charged a higher interest rate and pay at least $5,000 more than a borrower with a good score, according to the Consumer Federation of America, Washington.

But only 29 percent of the more than 1,000 adults surveyed by telephone in April knew that, the Consumer Federation and VantageScore Solutions reported last week in the their second joint annual survey of consumer knowledge about credit scores.

Barrett Burns, president and CEO of VantageScore, a Stamford, Conn., credit rating system developed as an alternative to FICO scores, said many consumers also didn’t know that credit inquiries can influence their credit scores.

However, almost all credit score models used by lenders take rate-shopping inquiries made within a two-week period as a single inquiry.

“Many consumers also believe that a person’s martial status and even ethnic origin can influence their credit scores,” Burns said.

The truth is, those factors are not considered in calculating a credit score.

Credit scores can be lowered due to missed payments and delinquencies, high credit card balances and personal bankruptcies.

What does count and how can consumers raise their credit scores? Especially important are:

Consistently paying bills on time every month.

Not maxing out, or even coming close to maxing out, credit cards or other revolving credit accounts.

Paying down debt rather than just moving it around, as well as not opening many new accounts rapidly.

Regularly checking credit reports to make sure they are error-free. Information about someone with a similar name can land in your file. You can access your reports for free at annualcreditreport.com, or by calling (877) 322-8228 .

A major concern is student debt, Burns said.

“According to the Federal Reserve Bank of New York, over $100 million in student loans were taken out last year, and the total loans outstanding exceeds a trillion dollars, which is a staggering amount,” Burns said.

More than 90 percent of students who earn a bachelor’s degree took out a loan to pay for it, up from 45 percent in 1993. Nearly one in 10 borrowers who started repayment have defaulted within two years.

When a student loan comes out of deferment and it’s time to repay it, it’s then treated the same as any other debt, such as credit cards, car loans or mortgages, said Sarah Davies, research executive with VantageScore.

“Don’t borrow too much, and when it’s time to pay it back, pay it on time,” Davies said.

What is considered a good generic credit score?

It depends on the scoring system. Scores using the FICO scale (300 to 850) are usually considered good if they are over 700.

However, a score using the VantageScore scale (501 to 990) are usually considered good if they’re over 800. VantageScores also give the consumer a letter grade of A,B, C, D or F.

VantageScore is a generic credit scoring model created by the three credit reporting companies, Equifax, Experian, and TransUnion.

With VantageScore, lenders can accurately score millions of Americans who previously were unscorable, opening doors for many creditworthy borrowers.

Another tip to keep your score high is to avoid loading up on lots of debt before closing on a mortgage. Many lenders pull the score right before the closing.

“A lot of people get excited and run out and buy a lot of things for a new home and that has the high probability of negatively affecting the credit score,” Burns said.

Just a few years ago, I sat in the University of Georgia football stadium as my son walked across the on-field stage to receive his college degree. As the ceremony ended with the traditional toss of the graduation caps into the air, my wife and I were also celebrating the fact that he was beginning his new life without any student loan debt.

But as head of an organization that helps people get out of debt and develop financial skills for life-long success, I could not help but wonder how many of those students were launching their careers anchored to debt. It turns out, quite a few of them were.

An estimated two-thirds of college students graduating in 2010 have student debt, reported The Student Debt Project in late 2011. And what they owe is increasing each year.

The U.S. Department of Education’s National Center for Education Statistics released figures in October indicating that all college loan borrowing, including private loans, federal loans, and Parent PLUS loans, increased from 34 percent to 39 percent between 2003–04 and 2007–08, and that Federal Stafford Loan borrowing increased from 32 percent to 35 percent during this period. About that same time, the Federal Reserve Bank of New York indicated that student debt had surpassed not only total credit care balances, but also total car loan balances.

It gets worse.

The graduating class of 2010 left college campuses burdened by an average of more than $25,000 in debt, reported The Student Debt Project. That means more than 37,000,000 college alumni are trying to pay off almost $1 trillion dollars of debt in a very tight job market.

Ironically, the willingness to borrow becomes an incentive for schools to disregard cost-cutting measures. While the economy has sputtered along with 1 to 3 percent growth, over the last three years the cost of education at a four-year public college has gone up 25 percent.

What’s taking place is an emotional blackmail of sorts, in which colleges raise their prices far out of line with market events, holding the hope of the American dream over the heads of increasingly desperate teenagers and their parents.

I recently received an e-mail solicitation from an ambitious high school senior asking for donations to sponsor her to the elite private school of her dreams.

She was accepted for her academic and leadership abilities but found that she would need $165,000 to get through the four years ahead before she could toss her cap into the air. These numbers look more like a mortgage to me.

Most disturbing is that the government recently has proposed a number of policy changes that will continue to fuel the bubble.

The Obama administration has advocated moving more and more of the underwriting for these debts to the public sector (i.e., the taxpayer), modifying the terms for repayment and easing the time before the loans can be forgiven and seeking to artificially curb interest rates on the loans. All of these will be helpful to the current borrowers but sends clear signals that borrowing is an acceptable practice for earning a college degree.

It’s time to discuss the better solution: earning a college degree without debt. Not only is it possible, it is a prudent decision that needs to be championed by parents, students and educators.

A good place to begin is by evaluating a student’s gifts and skills to direct them to a field of study that can become a future career. Learning is priceless, but the costs today warrant avoiding the unnecessary expense of a midstream change in majors or simply attending for four years to “get a degree in something.”

For some, postponing college in favor of work experience while making a plan and carefully choosing a field of study would be time well spent.

But for those ready to begin a college career, here are our recommended “12 Steps” to consider:

1. Know yourself. Rather than just take prep-course for the ACT and SAT tests, do some self-evaluation to choose the appropriate course of study. The organization I represent, Crown’s Career Direct, is a personal assessment that can help a student turn their passion into a career.

2. Treat high school as the place to work to earn the grades that will qualify students for scholarships and grants. It is the highest paying “job” for anyone age 14-18. For some, it could mean more than $100,000 of financial rewards.

3. Take as many AP classes as possible while still in high school. The college credits earned there save money later.

4. Take dual or joint enrollment classes while still in high school. These are taught either in your high school or on a college campus. They are graded and count toward your GPA.

5. Turn a teenager’s web browsing skills to good use looking for scholarships off the beaten path. Many big box stores like Wal-Mart and Target offer a large number of small general scholarships for local students, from $500 to $1,000. Every little bit helps.

6. Attend a community college for the first two years while living at home. This decision dramatically lowers the cost of a college education while still allowing the student to earn a diploma from the desired school.

7. Choose an affordable institution for an undergraduate degree, and save money for a master’s degree at the school of your choice.

8. “CLEP” out of some classes. The College Level Examination Program, or CLEP, allows you to test out of certain classes. Study guides are available to help you learn enough material to pass the test.

9. Participate in the U-Promise program.

10. Work part time while in school, during breaks and over the summer. A student should be able to work part time at least to provide spending money while in school. Studies prove that students who work perform better in their classes.

11. Consider the military. By joining a military reserve unit, significant funds can be earned. As active duty military, students can earn GI Bill money for education.

12. Leverage your athletic ability. Sports scholarships have long been a path to college for talented athletes. Turn that God-given talent into a degree than can last a lifetime.

In the end, choosing debt should be done with a calculator and a good understanding of the long -term implications.

In general, for parent or students, only 5 percent of after-tax, spendable income should go to debt repayment. When student debt (or any consumer debt) devours more than 8 percent of available income, financial stress will dramatically increase and may turn the dream degree into a nightmare.

No student should come home from college ignorant of the high cost of debt as a drain on life for years to come. For parents and students considering their options, understanding debt—and avoiding it—should be part of College Prep 101.

The federal agency tasked with helping protect consumers from troublesome loan agreements and credit card debt is still focused on making contracts for cards easier to understand.
Even as the federal Consumer Financial Protection Bureau has tackled a number of other credit-related issues facing Americans, it has not forgotten its task of simplifying credit card fee and rate disclosure documents, according to a report from Dow Jones Newswire. A number of prototypes for such agreements were introduced soon after the CFPB gained full regulatory power, but the agency has also turned its attentions to other matters.
“My view continues to be that the consumer ought to be able to read the contract and we can … create a document that is [binding],” Marla Blow, assistant director of card markets for the Consumer Financial Protection Bureau, said during a recent presentation, according to the news agency. Clearer understanding of the terms of the accounts they are signing on to may be a boon for consumers, and could lead to fewer needing to seek significant debt relief measures as a result of extremely strained finances.